Jordan's home builders hope for golden summers

Home builders in Jordan are facing a massive profit squeeze, but there are hopes for strong sales in the summer months, according to the head of the country's house building association.

Jordan Housing Developers Association (JHDA[2]) President Kamal Awamleh has expressed fears that the current profit squeeze may push some property market investors to switch to other sectors.

However, Awamleh expected the real estate[3] sector to perform well during this summer.

In a recent interview with The Jordan Times, he noted that although residential property sales are improving, the cost of building materials is rising while home buyers[4] are still negotiating lower prices.

“Many developers are selling houses at discounted prices in order to keep customers coming. This is squeezing builders' profits,” he noted.

A few years ago, according to the JHDA president, profit margins used to range between 15-20 per cent of the residential property price, but recently the margin has dipped to below 10 per cent.

Awamleh voiced concern that some developers may quit the housing industry due to declining profits[5], noting that some have already started to invest in other more profitable sectors, in addition to their investments in the real estate market.

He said some developers have even resorted to investments outside the Kingdom.

Criticising the government’s decision early last year to freeze incentives for buyers of medium-sized apartments, which pushed up the cost of purchasing residential properties, Awamleh put forward some proposals that could benefit both developers and buyers.

He called on the government to reinstate the incentives, which include exemptions on taxes and registration fees[6], saying the incentives should be considered a right of Jordanians.

According to regulations, buyers of apartments sized 150 square metres (sq.m.) or less currently do not pay registration fees for the first 120sq.m, while three years ago, the government decided to increase the size of apartments eligible to benefit from the incentives by exempting the first 150sq.m. (instead of the first 120sq.m.) of apartments sized 300sq.m. or less from registration fees.

The government decided to cancel the incentives on the basis that the real estate sector exited the slowdown caused by the global financial crisis and that exemptions had deprived the Treasury of millions of dinars the state budget urgently needs.

But Awamleh challenged the government’s premise, pointing out that if the Treasury collects lower revenues from the sector due to the exemptions, the property market[7] is the growth engine for over 30 other industries that, when performing well, would ultimately generate higher tax revenues.

“There is another thing about the incentives. It is not fair that many Jordanians paid much lower registration fees a few years ago than current potential buyers,” he noted.

Awamleh also urged the authorities to expand infrastructure such as roads and water networks into Amman’s outlying areas, as there is intense competition among developers for increasingly scarce plots of land in the capital suitable for residential projects.

According to the JHDA president, land prices went up sharply over the past two years because there are limited plots of land suitable for housing units in the capital.

Another proposal by investors to keep property prices affordable, according to Awamleh, is for regulatory authorities to allow developers to construct seven- to 10-storey apartment buildings to cut the cost of land, which constitutes around 50 per cent of the overall value of housing projects.

Currently, residential buildings in Amman cannot be higher than five storeys.

Promising summer:

Awamleh expected housing firms to sell more apartments this summer compared with the June-September period of last year.

“Figures indicate that this year should be promising, as we expect summer sales to be higher than last year,” he noted, citing official statistics indicating that trading in the real estate market rose by 40 per cent to JD421 million in January, while it stood at JD300 million in the same month last year.

Expanding on his optimistic expectations for the summer, Awamleh noted that demand for residential units by Jordanians residing in the Gulf states is projected to peak when they visit the Kingdom later this year.

In 2012, many expatriates postponed purchasing apartments until this year, he added, explaining that Jordanians working abroad usually check on available housing projects during their visit to the country in summer, and then make the final decision to buy the next summer.